CAPSTONE PROJECT REPORT DEVELOPMENT STRATEGIES OF SECOIN BUILDING MATERIAL CORPORATION DURING THE PERIOD OF 2010-2020 BÁO CÁO DỰ ÁN CAPSTONE CHIẾN LƯỢC PHÁT TRIỂN CỦA CÔNG TY CỔ PHẦN VẬT LIỆU XÂY DỰNG SECOIN GIAI ĐOẠN 2010-2020

CAPSTONE PROJECT REPORT DEVELOPMENT STRATEGIES OF SECOIN BUILDING MATERIAL CORPORATION DURING THE PERIOD OF 2010-2020 BÁO CÁO DỰ ÁN CAPSTONE CHIẾN LƯỢC PHÁT TRIỂN CỦA CÔNG TY CỔ PHẦN VẬT LIỆU XÂY DỰNG SECOIN GIAI ĐOẠN 2010-2020

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

DEVELOPMENT STRATEGIES OF SECOIN BUILDING MATERIAL CORPORATION

DURING THE PERIOD OF 2010-2020

Group No.3 — GEMBA01.03

Student’s name:

1.Mr Dinh Hong Ky 2.Mrs Phing Thi Tuyét Mai

3.Mr Nguyễn Văn Nuôi 4.Mr Nguyễn Doãn Lũy

(cS Global Advanced Mester o! ie nee tat

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We would like to express our gratitude to all the lecturers of Griggs University and Hanoi National University who gave us the valuable knowledge in business administration to conduct this capstone project We would like to thank Secoin Building Material Corporation for giving us necessary information providing business data and giving us the chance to make a survey on the company’s activities which are foundation for our project

We also want to give our special thanks to Hanoi Construction Department for supplying us the blueprint, guideline and other information relating to the development of non-burnt building material industry of Vietnam

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Page Acknowledgement

List of figures, graphs

List of tables

PREFACE: GENERAL INTRODUCTION

A The Importance of making Development Strategles 222112

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CHAPTER 1: FUNDAMENTAL THEORIES OF MANAGEMENT

STRATEGY

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CHAPTER 2: ACTUAL SITUATION OF BUSINESS MANAGEMENT IN SECOIN BUILDING MATERIAL CORPORATION DURING RECENT TIME

2.1 General introduction about Secoin Building Material Corporation 45

2.2 Actual situation of business management of Secoin Building Material Corp 51

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(1) Corporate strategy for Secoin Building Material Corporation 7Ì (2) Business strategy of Secoin Building Material Corporation lẻ

Griccd Strategic Management of Secoin BM Corp: during 2010-2020

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CHAPTER 3: SOLUTIONS TO STRATEGIC MANAGEMENT OF SECOIN BUILDING MATERIAL CORPORATION DURING THE PERIOD 2010-

2020

3.1 Objectives, guideline and potential development of non-burnt building

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(A2) Micro environment (non-burnt building material industry) 89

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3.4 Choosing strategy for Secoin Building Material Corporation during the period

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Table 3.1 - Classifying product types according to economic zones 8Š Table 3.2 - Estimated quantity of plants to be built up in the whole country (2010-2020) icra senses esate clei gicsenceserceree nen riesmetnoe ea opaemnensersene eer nan nố na ca ẽaaỶÝ 86 Table 3.3 - SWOT analysis for Secoin in the period of 2010-2020 0] Table 3.4 - Other criteria for 2009-2013 96 Table 3.5 — The target markets in the period of 2010-3020 I04

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PREFACE

GENERAL INTRODUCTION

A The importance of making Development Strategies

The modern business environment is changing day by day Vietnam by far has been considered one of the fastest growing economy, not just in Asia but the entire world Opening the economy in 1986, Vietnam has undergone almost 30 years toward a real market economy An important milestone in the way of global integration for Vietnam was marked when Vietnam joined WTO A lot

of changes have been made and are expected to be made in the years to come, especially the period of 2010-2020

The question is: Will those fast changes have any influence Vietnamese companies? Of course the answer is YES All leaders of Vietnamese companies can easily answer YES without need to think But it will be a much harder

question for them to answer: How will their companies cope with those

changes? Will they be able to grow sustainably in the road ahead? How they expect their companies to become in ten years time?

So, we have come to the point of strategic thinking! The German people has a proverb: “What's the use of running if you are not on the right road?”’ Strategic thinking will help leader of a company decide where his organization has to go, and whether they are going on the right road or not A leader with a good strategy will make the company grow by grasping the opportunities that the outside world bringing to them By all these thoughts, our team can see the importance of strategic thinking in the mind of leaders of companies who are operating in a fast changing business environment

A strategic thinking in the mind of leader shouldn’t be confidential information Strategy defines the future goals of a company and they should be known by all company members The whole staff should have a clear understanding of the

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direction of further development of the company, otherwise the company is

doomed to failure

We are now in the second half of 2009 The year 2008 and the first half of 2009 has witnessed so much turbulence in the global economy It is expected that the recovery will start from early 2010 Then, the period of 2010 to 2020 may be the time for economic growth Vietnam will be in that growing trend, and Vietnamese companies are driving force of an economic booming Start making a business strategy for 2010-2020 right from today - it is the first thing a company leader needs to do if he has not done it yet

Realizing the importance of working out a development strategy for the coming

10 years, the leader of Secoin Building Material Corporation can draw a picture

of the future prospect for his company What to be put in the picture? It should

be a panorama showing in details the environment Secoin is in, how Secoin looks like, and where Secoin needs to go Developing an extensive and

comprehensive development strategy is therefore the most important task for

The purpose of researched topic

The purpose of conducting this research is to identify strategy and business development to the year 2020 for Secoin Building Material Corporation From there, Secoin can take appropriate action to expand the scale, reduce business costs, use capital effectively, bring profits to enterprise as well as increase efficiency in competition for business

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In this research, we also suggested some solutions to Secoin in order to implement the corporate strategy and business strategy during the period of 2010-2020

Capstone project structure:

Our project includes three chapters as follows:

Chapter 1: Fundamental theories of management strategy

Chapter 2: Actual situation of business management in Secoin Building Material Corporation during recent time

Chapter 3: Solutions to strategic management of Secoin Building Material Corporation during the period 2010-2020

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HAPTER 1 FUNDAMENTAL THEORIES OF MANAGEMENT STRATEGY

1.1 Overall management strategy:

1.1.1 The concept of strategy and management strategy:

e The concept of strategy:

Strategies are means to ends All organizations, large and small, profit- seeking and not-for- profit, private and public sector, have a purpose, which may or may not be articulated in the form of a mission and/or

vision statement

“The flame of competition has changed from smoky yellow to intense white heat For companies to survive and prosper they will have to have a vision, a mission and strategy They will pursue the action arising from that strategy with entrepreneurial skill and total dedication and commitment to win.”

(Peter B Ellwood, Chief Executive, Lloyds TSB Group )

“Far too many companies either have no goals at all, other than cost reduction, or their boss hides them in his head There’s no hope for companies in Britain unless more top managements accept the need for a widely communicated set of clear objectives.”

Peter Beck, ex-Chairman, The Strategic Planning Society, 1987

At their simplest, strategies help to explain the things that managers and organizations do These actions or activities are designed and carried out

in order to fulfill certain designated purposes, some of them short term in nature, others longer term The organization has a direction and broad purpose, which should always be clear, articulated and understood, and which sometimes will be summarized in the form of a mission statement More specific milestones and targets (objectives) can help to guide specific actions and measure progress

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Strategies, then, are means to ends

They are relevant for the organization as a whole, and for the individual businesses and/or functions that comprise the organization They are created and changed in a variety of ways They have, however, one common feature: they all have life cycles and need changing, either marginally or dramatically, at certain times

While strategic management incorporates major changes of direction for the whole business, such as diversification and growth overseas, it also involves smaller changes in strategies for individual products and services and in particular functions such as marketing and operations Decisions by managers in relation to their particular areas of product or functional responsibility have a strategic impact and contribute to strategic change

To some extent, all managers are strategy-makers

Strategic management is a complex and fascinating subject with straightforward underlying principles but no ‘right answers’ Strategy is about issues and perspectives on problems - there is no single, prescriptive

doctrine which satisfies everyone’s views

Companies succeed if their strategies are appropriate for the circumstances they face, feasible in respect of their resources, skills and capabilities, and desirable to their important stakeholders - those individuals and groups,

both internal and external, who have a stake in and an influence over the

business Simply, strategy is fundamentally about a fit between the organization’s resources and the markets it targets - plus, of course, the ability to sustain fit over time and in changing circumstances

Morrison and Lee (1979) concluded that successful companies seem to be distinguished from their less successful competitors by a common pattern

of management practices:

w First, they identify more effectively than their competitors the key success factors inherent in the economics of each business For example in

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the airline industry, with its high fixed costs and relatively inflexible route allocations, a high load factor is critical to success It is important, though, that high load factors are not at the expense of healthy sales of more expensive seats, and this requires skilful marketing

m Second, they segment their markets so as to gain decisive competitive advantage, basing the segmentation on competitive analysis and often separating segments according to the strengths and weaknesses of different competitors This enables them to concentrate on segments where they can both maximize their competitive advantage and avoid head-on competition with stronger competitors

m Third, they carefully measure and analyze any competitive advantage This requires a sound basis for assessing a company’s advantages relative

to its competitors

m Fourth, they anticipate their competitors’ responses Good strategic thinking also implies an understanding of how situations will change over time Business strategy, like military strategy, is a matter of maneuvering for superior position and anticipating how competitors will respond, and

with what measure of success

w Fifth, they exploit more, or different, degrees of freedom than their competitors Specifically, they seek to stay ahead of their rivals by looking for new competitive opportunities Whilst innovation and constant improvement are essential, there are also potentially huge rewards for organizations which are first to reach the new competitive high ground by changing the currently practiced rules of competition

= Finally, they give investment priority to businesses or areas that promise

a competitive advantage Because there are many views on strategy and strategic management and no single, universally accepted, approach, a study of strategic changes in a variety of different organizations is

valuable An examination of outcomes, followed by an analysis of the

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decisions which led to these relative successes and failures, is rich in learning potential Examples should not be confined to just one sector Manufacturing and service businesses, the private and public sectors and not-for-profit organizations are all relevant Everyone who can make or influence decisions which impact on the strategic effectiveness of the business should have at least a basic understanding of the concepts and processes of strategy The processes will often be informal, and the outcomes not documented clearly, but they still exist, and managing the processes effectively determines the organizationỖs future Without this understanding people often fail to appreciate the impact of their decisions and actions for other people within the business They are less likely to be able to learn from observing and reflecting upon the actions of others They are also more likely to miss or misjudge new opportunities and growing threats in the organizationỖs environment

In other words, strategy is about:

* Where is the business trying to get to in the long-term (direction)

* Which markets should a business compete in and what kind of activities are involved in such markets? (markets; scope)

* How can the business perform better than the competition in those markets? (advantage)?

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* hat resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete? (resources)?

* What external, environmental factors affect the businesses' ability to compete? (environment)?

* What are the values and expectations of those who have power in and around the business? (stakeholders)

Strategy at Different Levels of a Business

Strategies exist at several levels in any organization - ranging from the overall business (or group of businesses) through to individuals working

Business Unit Strategy - is concerned more with how a business competes successfully in a particular market It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc

Operational Strategy - is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction Operational strategy therefore focuses on issues of resources,

processes, people etc

e The concept of management strategy

There are a number of aspects to strategic management

First, the strategy itself This is concerned with the establishment of a clear direction for the organization and for every business, product and service, and a means for getting there which requires the creation of strong

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competitive positions

The second requirement is excellence in the implementation of strategies

in order to yield effective performance

Third, creativity and innovation are needed to ensure that the organization

is responsive to pressures for change and that strategies are improved and renewed

Fourth is the ability to manage strategic change, both continuous, gradual, incremental changes and more dramatic, discontinuous changes Innovation and change concern the strategy process in an organization Sound implementation and innovation should enable an organization to thrive and prosper in a dynamic, global environment, but in turn they depend on competencies In strategic awareness and learning Organizations must understand the strategic value of the resources that they employ and deploy, and how they can be used to satisfy the needs and expectations of customers and other stakeholders while outperforming competitors

Strategy is about actions, not plans - specifically the commitment of resources to achieving strategic ends concrete steps that immediately affect people's lives, not abstract intentions

Andrew S Grove, CEO, Intel

In its broadest sense, strategic management is about taking "strategic decisions" - decisions that answer the questions above

In practice, a thorough strategic management process has three main components, shown in the figure below:

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This is all about analyzing the strength of businesses' position and understanding the important external factors that may influence that position The process of Strategic Analysis can be assisted by a number of tools, including:

PEST Analysis - a technique for understanding the "environment" in

which a business operates

Scenario Planning - a technique that builds various plausible views of possible futures for a business

Five Forces Analysis - a technique for identifying the forces which affect the level of competition in an industry

Market Segmentation - a technique which seeks to identify similarities and differences between groups of customers or users

Directional Policy Matrix - a technique which summarizes the

competitive strength of a business operations in specific markets

Competitor Analysis - a wide range of techniques and analysis that seeks

to summarize a businesses’ overall competitive position

Critical Success Factor Analysis - a technique to identify those areas in which a business must outperform the competition in order to succeed

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WOT Analysis - a useful summary technique for summarizing the key issues arising from an assessment of a business "internal" position and

"external" environmental influences

Strategic Choice

This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying strategic options, and then evaluating and selecting strategic options

Strategy Implementation

Often the hardest part When a strategy has been analyzed and selected, the task is then to translate it into organizational action

Beginning in the 1950's, research on organizations emphasized the

importance of understanding the macro-economic environment in which organizations operate An organization on its own cannot affect environmental factors, nor can environmental factors affect the profitability of an industry or an organization Conducting a strategic analysis entails scanning the general or macro-economic environment to detect and understand the broad, long -term trends

1.1.2 Tasks of management strategies:

Management strategy includes five tasks inter-communicating with each other: Create a strategic scenario describes the future image of the company, if the companies want to first become a company like? Government to provide long-term orientation, specify the image the company to become, for media companies feel about the actions of purpose

Setting goals - to transform scenario strategy into the implementation of that company must achieve

Develop strategies to achieve the desired goals

Implementation and administration of the strategy has been selected in an

effective and efficient

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1.2

e Rating of the implementation and conduct of the scenario, long-term direction, goals, strategies or implementation on the basis of experience,

the conditions change, ideas and opportunities new

1.1.3 Benefits of management strategy

Studies show that if applied management strategies organizations will perform better than organizations do not perform this process Achieved if appropriate between environmental organization's strategy, structure and process will generate positive effects on the performance of the organization Benefits of management strategy has been tested in many different fields, can be short with the three most basic are:

e Develop clear strategic scenario for the company

e Focusing more precisely on the important strategy

e Improve awareness of the rapidly changing environment

However, to achieve effective management strategies always need a formal process, and it can start with questions:

e Where is the organization?

e Ifno changes are be made after | year, 2 years, 3 years, 5 years, 10 years,

will it be acceptable or not ?

e If the answer is not acceptable, is it necessary to implement specific management actions? What should be considered as risks and interests? Process of development strategy formation

1.2.1 Vision

Statement to open a mission for the plan and strategy is the foundation for a

vision of the company Statement of mission or may be a motivating employees when transmit the purpose and value of the company to customers

and communities

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A statement of vision is a report about a company where you hope to achieve Universal Declaration vision needed for strategic planning because it outlines the future of your company as you achieve goals and your goals The statement

of vision may be different between different length, can be a short, can be a paragraph long, but must identify the final destination of you

Vision of your company is an important statement to guide the process of planning strategies A statement of vision will determine the best results for the current initiatives and your potential

may be different in length, can be from 1 to 1 of questions and should talk

about business, purpose and values Mission of the company which is why the company exists on the market, who you are and you will bring to customers and communities in these types of products and services do Decisions in the process of planning and strategy of the dominant company must always harmonious with the statement of mission

A strategic plan starts with a clearly defined business mission Mintzberg defines a mission as follows: “A mission describes the organization’s basic function in society, in terms of the products and services it produces for its customers”

A clear business mission should have each of the following elements

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"Eee & Values

Why does the business exist? Is it to create wealth for shareholders? Does

it exist to satisfy the needs of all stakeholders (including employees, and

society at large?)

A Strategy and Strategic Scope:

A mission statement provides the commercial logic for the business and so defines two things:

- The products or services it offers (and therefore its competitive position)

- The competences through which it tries to succeed and its method of competing

A business’ strategic scope defines the boundaries of its operations These are set by management

For example, these boundaries may be set in terms of geography, market, business method, product etc The decisions management make about strategic scope define the nature of the business

Policies and Standards of Behavior

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A mission needs to be translated into everyday actions For example, if the business mission includes delivering “outstanding customer service”, then policies and standards should be created and monitored that test delivery These might include monitoring the speed with which telephone calls are answered in the sales call centre, the number of complaints received from customers, or the extent of positive customer feedback via questionnaires

e Values and Culture:

The values of a business are the basic, often un-stated, beliefs of the

people who work in the business These would include:

Business principles (e.g social policy, commitments to customers) Loyalty and commitment (e.g are employees inspired to sacrifice their personal goals for the good of the business as a whole? And does the business demonstrate a high level of commitment and loyalty to its staff?)

Guidance on expected behavior — a strong sense of mission helps create

a work environment where there is a common purpose

What role does the mission statement play in marketing planning?

In practice, a strong mission statement can help in three main ways:

Objective is specific, clear, feasible, in a shorter time Objective is regarded as

a specific vision of the enterprise

Main goal is the future status of the company trying to implement or final results of the actions planned

To that, the objective must have four characteristics:

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1.3

First, a target is considered to be well established if it accurate and can measure

- Second, a target is set to be the critical issues

- Third, a goal was set up well to the challenges and can make

- Fourth, a goal is built so well identified with a period of time can be achieved

- Finally, the objectives to provide good tools to evaluate the implementation of management

Objectives can be set at two levels:

- Corporate level: These are objectives that concern the business or organization as a whole

- Specific - the objective should state exactly what is to be achieved

- Measurable - an objective should be capable of measurement — so that it

is possible to determine whether (or how far) it has been achieved

- Achievable - the objective should be realistic given the circumstances in which it is set and the resources available to the business

- Relevant - objectives should be relevant to the people responsible for

achieving them

- Time Bound - objectives should be set with a time-frame in mind These

deadlines also need to be realistic

Strategy Analysis:

We found that, how the organization is typically one of a number of competitors in an industry; and to a greater or lesser degree these competitors will be affected by the decisions, competitive strategies and innovation of the

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others These interdependencies are crucial, and consequently strategic

decisions should always involve some assessment of their impact on other

companies, and their likely reaction Equally, a company should seek to be fully aware of what competitors are doing at any time

Furthermore, this industry will be linked to, and dependent on, other industries: industries from which it buys supplies, and industries to which it markets products and services Essentially this relates to Porter’s model of the forces that determine industry profitability, the subject of the next section in this chapter

The relationships between a firm and its buyers and suppliers are again crucial for a number of reasons Suppliers might be performing badly and as a result future supplies might be threatened; equally they might be working on innovations that will impact on organizations to which they supply Buyers might be under pressure from competitors to switch suppliers It is important

to be strategically aware, and to seek to exert influence over organizations where there are dependencies

These industries and the firms that comprise them are additionally part of a wider environment This environment is composed of forces that influence the organizations, and which in turn can be influenced by them Particular forces will be more or less important for individual organizations and in certain circumstances It is important that managers appreciate the existence of these forces, how they might influence the organization, and how they might be

influenced

Mintzberg (1987) has used the term ‘crafting strategy’ to explain how managers learn by experience and by doing and adapting strategies to environmental needs He sees the process as being analogous to a potter molding clay and creating a finished object If an organization embarks upon a determined change of strategy, certain aspects of implementation will be changed as it becomes increasingly clear with experience how best to manage

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the environmental forces Equally, managers adapt existing competitive and functional strategies as they see opportunities and threats and gradually change things In each case the aim is to ensure that the organization’s resources and values are matched with the changing environment

1.3.1 Macro Environment (PEST model)

A PEST analysis is merely a framework that categorizes environmental influences as political, economic, social and technological forces Sometimes two additional factors, environmental and legal, will be added to make a PESTEL analysis, but these themes can easily be subsumed in the others

PEST analysis is concerned with the environmental influences on a business The acronym stands for the Political, Economic, Social and Technological

issues that could affect the strategic development of a business

The table below lists some possible factors that could indicate important environmental influences for a business under the PEST headings:

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Political /

Environmental Economic growth (overall; Income distribution Government

regulation and by industry sector) (change in spending on

disposable income;

family size and effort

protection ‘unemployment (minimum (ee Home working, technology

wage, unemployment single households) _ transfer

invest in capital

equipment, corporation tax

rates)

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Political /

Government — Exchange rates (effects on Education -

Legal

| Energy use and |

‘Competition Inflation (effect on costs Fashions and fads | Changes in

attitude ‘customers: effect on cost

of imported components) —

regulation and selling prices) Health & welfare material sciences

‘Stage of the business cycle Living conditions ‘Impact of changes (effect on short-term (housing, amenities, ‘in Information

consumer confidence

1.3.2 Michael Porter's Five Forces Model

Porter (1980) argues that five forces determine the profitability of an industry They are featured in Figure 1.4 At the heart of the industry are rivals and their competitive strategies linked to, say, pricing or advertising; but, he contends, it

is important to look beyond one’s immediate competitors as there are other determinants of profitability Specifically there might be competition from substitute products or services These alternatives may be perceived as substitutes by buyers even though they are part of a different industry There may also be a potential threat of new entrants, although some competitors will see this as an opportunity to strengthen their position in the market by ensuring, as far as they can, customer loyalty Finally it is important to appreciate that companies purchase from suppliers and sell to buyers If they are powerful they are in a position to bargain profits away through reduced margins, by forcing either cost increases or price decreases This relates to the strategic option of vertical integration which will be considered in detail later

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in the book Vertical integration occurs where a company acquires, or merges with, a supplier or customer and thereby gains greater control over the chain of activities which leads from basic materials through to final consumption

Any company must seek to understand the nature of its competitive environment if it is to be successful in achieving its objectives and in establishing appropriate strategies If a company fully understands the nature

of the five forces, and particularly appreciates which one is the most important,

it will be in a stronger position to defend itself against any threats and to influence the forces with its strategy The situation, of course, is fluid, and the nature and relative power of the forces will change Consequently, the need to monitor and stay aware is continuous

An industry is a group of firms that market products which are close substitutes for each other (e.g the car industry, the travel industry)

Some industries are more profitable than others Why? The answer lies in

understanding the dynamics of competitive structure in an industry

The most influential analytical model for assessing the nature of competition

in an industry is Michael Porter's Five Forces Model, which is described

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and long-run industry profitability These five "competitive forces" are:

- The threat of entry of new competitors (new entrants)

- The threat of substitutes

- The bargaining power of buyers

- The bargaining power of suppliers

- The degree of rivalry between existing competitors

Threat of New Entrants

New entrants to an industry can raise the level of competition, thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (e.g shipbuilding) whereas other industries are very easy to enter (e.g estate agency, restaurants) Key barriers to entry include

- Economies of scale

- Capital / investment requirements

- Access to industry distribution channels

- The likelihood of retaliation from existing industry players

Threat of Substitutes

The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products

depends on:

- Buyers' willingness to substitute

- The relative price and performance of substitutes

- The costs of switching to substitutes

Bargaining Power of Suppliers

Suppliers are the businesses that supply materials & other products into the industry

The cost of items bought from suppliers (e.g raw materials, components) can have a significant impact on a company's profitability If suppliers have high

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g power over a company, then in theory the company's industry is less attractive The bargaining power of suppliers will be high when:

There are many buyers and few dominant suppliers

There are undifferentiated, highly valued products

Suppliers threaten to integrate forward into the industry (e.g brand manufacturers threatening to set up their own retail outlets)

Buyers do not threaten to integrate backwards into supply

The industry is not a key customer group to the suppliers

Bargaining Power of Buyers

Buyers are the people / organizations who create demand in an industry

The bargaining power of buyers is greater when

There are few dominant buyers and many sellers in the industry

Products are standardized

Buyers threaten to integrate backward into the industry

Suppliers do not threaten to integrate forward into the buyer's industry The industry is not a key supplying group for buyers

Intensity of Rivalry

The intensity of rivalry between competitors in an industry will depend on: The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader

The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting

Degree of differentiation - industries where products are commodities (e.g steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry

Switching costs - rivalry is reduced where buyers have high switching costs - i.e there is a significant cost associated with the decision to buy a product from an alternative supplier

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Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense Where competitors are "milking" profits

in a mature industry, the degree of rivalry is less

- Exit barriers - when barriers to leaving an industry are high (e.g the cost

of closing down factories) - then competitors tend to exhibit greater rivalry

1.3.3 Value chain:

The value chain is a systematic approach to examining the development of competitive advantage It was created by M E Porter in his book, Competitive Advantage (1980) The chain consists of a series of activities that create and build value They culminate in the total value delivered by an organization The ‘margin’ depicted in the diagram is the same as added value The organization is split into 'primary activities’ and 'support activities.'

Inbound ; Outbound Marketing & a

Operations

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This is here goods are manufactured or assembled Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine

Outbound Logistics

The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer

Marketing and Sales

In true customer orientated fashion, at this stage the organization prepares the offering to meet the needs of targeted customers This area focuses strongly upon marketing communications and the promotions mix

Technology Development

Technology is an important source of competitive advantage Companies need

to innovate to reduce costs and to protect and sustain competitive advantage This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments

Human Resource Management (HRM)

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Employees are an expensive and vital resource An organization would manage recruitment and s election, training and development, and rewards and remuneration The mission and objectives of the organization would be driving force behind the HRM strategy

Firm Infrastructure

This activity includes and is driven by corporate or strategic planning It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department

Value Chain Analysis

Value chain is sometimes used as a synonym for "Value chain analysis" and is

a description of the activities an organization performs whilst linking these activities to the organizations competitive position

For full analysis of the value chain, you need to include business partner activities in your business supply chain

Put simply, you want to maximize your value chain by increasing your profit margin whilst making sure the activities performed by your organization and business supply chain partners (upstream suppliers or downstream wholesalers and retailers) are optimized

Value chain analysis is often used with other initiatives such as Six Sigma to deliver optimal business processes resulting in increased business profit margins, increased quality and an increase in business process speed

In other words, these types of analysis processes are concerned with producing Better - Faster - Cheaper

Products and services resulting in more profit for an organization

Steps in Value Chain Analysis

Value chain analysis can be broken down into a three sequential steps:

(1) Break down a market/organization into its key activities under each of the major headings in the model;

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(2) Ansesk the potential for adding value via cost advantage or differentiation,

or identify current activities where a business appears to be at a

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats

SWOT analysis is an important tool for auditing the overall strategic position

of a business and its environment

Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis It is also a very popular tool with business and marketing because it is quick and easy to learn

The Key Distinction - Internal and External Issues

Strengths and weaknesses are internal factors For example, a strength could

be your specialist marketing expertise A weakness could be the lack of a new

product

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Opportunities and threats are external factors For example an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products

A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete

it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment Accordingly, SWOT analysis is best used as a guide and not a prescription Adding and weighting criteria to each factor increases the validity of the analysis

Areas to Consider

Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses, Opportunities and Threats are listed in the example SWOT analysis below:

| >Techwriotogical skits >ABIENCe of important SKINS

| >Leading Grands > Weak brands

| +>Oistriautien cranneis >Poor access t attribution

| >Customer Loyaity / Relstonshe > Lew customer retention

| >Seate > Sub-seate

*W®anaesmer+ > Managemect

Ox IPOCLY mors i Theme ]

| > Changing customer tastes > Changing customer testes

| >Lib@?2I:4 Rion of g®o0aphic markets > Closing of geographic markats

>Technotogical advances > Technological advances

| > Changes in gcvewrrirrasart mi Eícx > Changes : gvwrrvneert polfics

| >Lower personal toxes > Tax increase

| Change populaton age-structire > Change in populaten age-structure

| >New distribution channels > New distr@uben channets

All of the resources at the disposal of the organization can be deployed strategically, including strategic leadership It is therefore useful to consider the resources in terms of where they are strong and where they are weak as this will provide an indication of their strategic value However, this should not be seen as a list of absolute strengths and weaknesses seen from an internal perspective; rather, the evaluation should consider the strengths and

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weaknesses in relation to the needs of the environment and in relation to competition The views of external stakeholders may differ from those of internal managers (who in turn may disagree among themselves) when evaluating the relative strength of a particular product, resource or skill Resources should be evaluated for their relative strengths and weaknesses in the light of key success factors

Even though an organization may be strong or weak in a particular function, the corresponding position of its major competitors must also be taken into account For example, it might have sophisticated computer-controlled machine tools in its factory, but if its competitors have the same or even better equipment, the plant should not be seen as a relative strength This issue refers

to distinctive competencies - relative strengths which can be used to create competitive advantage As any resource can be deployed strategically, competitive advantage can be gained from any area of the total business

An evaluation of an organization’s strengths and weaknesses in relation to environmental opportunities and threats is generally referred to as a SWOT analysis

Once all of the important strategic issues have been teased out from a long list

of strengths, weaknesses, opportunities and threats, the following questions should be asked

- How can we either neutralize critical weaknesses or convert them into strengths?

- Similarly, can we neutralize critical threats or even build them into new opportunities?

- How can we best exploit our strengths in relation to our opportunities?

- What new markets and market segments might be suitable for our existing strengths and capabilities?

- Given the (changing) demands of our existing markets, what changes do

we need to make to our products, processes and services?

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- Who will be satisfied (any client group)?

- They will be satisfied about what (customers need - demand)?

- How to meet customer needs (with the skills or capacity any difference?)

Figure 1.6- illustrates three aspects of this

(Customer groups)

What is being satisfied?

(Customer

eeds)

DEFINITION

OF BUSINESS

How are customer

needs being

satisfied?

(Distinctive Competencies)

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market that a company server will open the functions of the company meet customer needs The company so will bind the business's needs by a specific group for a specific customer In fact, the demand may be served in various ways Define a business orientation to customers will broadly identify ways to protect companies from the backward to recognize when a change needs In fact, with the help of a move by demand, by Abell pattern can help take advantage of the changes in the environment It can help answer the second

"Business as we do? And third question - "Business is should we do? "- Can

be answered by the model of Abell

1.4.2 Strategy Choice:

This process involves understanding the nature of stakeholder expectations (the "ground rules"), identifying strategic options, and then evaluating and selecting strategic options

The choice of strategy:

- The strategy of the company The strength of a company depends on 3

factors control strategies, human resources, operations and organization structure The advantage of a company depends on quality and effective combination of factors controlling this strategy together

- Competitive strategy To be able to operate a business effectively, create more value for employees and shareholders, companies should have competitive advantages compared to competitors How to create competitive advantage and how to maintain competitive advantage that you are?

- Strategy by location Depending on their position in the market, companies need a strategy appropriate to protect, maintain or challenge a higher position

- Strategy-oriented In the goods sector that the company business, from

time to time, each branch can have different orientations: Male

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opportunities for development, protection of temporary positions or exit? Companies need a strategy for each direction

1.5 Implementation and test strategy development:

In our introduction of business strategy, we used Johnson & Scholes'

definition stating that "Strategy is the direction and scope of an organization over the /ong-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations"

So, what are these "resources" that a business needs to put in place to pursue its chosen strategy?

Business resources can usefully be grouped under several categories:

1.5.1 Organization structure and control system:

Implementation strategy is how a company creates a placement organization that allows them to pursue their strategy is most effective Organization design that is to choose the combination of organization and system to control the company can pursue its strategy as effectively - create value and competitive advantage sustainable Structure identification of reporting relationships, procedures, guidelines, systems of power and decision-making

Organizational structure and control system offers two main roles:

- Firstly, coordinating activities of staff so that they work effectively to implement strategies to increase the competitive advantage

- Secondly, members of staff, they provide the engine to achieve the exceptional performance, quality, innovation and meeting customers

Organizational structure and control-oriented ways of handling and identifying how they will act in setting up organizations

e The role of organization structure: